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Need a loan to ‘live it up’? It costs more than you think

The following article was published in today’s edition of the Bermuda Sun

So, perhaps you’re a young Bermudian, you’ve got a decent job and you’re thinking to yourself that it may be time to take out a loan to buy a fancy new car or a nice sporty bike. This is exactly the situation I find myself in and it’s a hard to decide whether I should spend money now based on future earnings, or should I be a bit more frugal and only purchase within my means. In grappling with the answer to this question, I thought I’d share a story about the last few years and my own money management experiences.A few years ago I was working summers trying to pay for my schooling while abroad in the winters. At that time, a friend of mine liked to ridicule me for my frugality. See, every summer, I used to work a day job building my experience and a night/weekend job as a bouncer. He seemed to think it was ridiculous that I would give up my weekends as opposed to going out to party like he and many other friends did.The basis of my commitment to saving money was paying for as much as my schooling as I could, so I could hopefully stay out of debt in the long term. Looking back on it, was it a good decision to make and if I was presented with the choice again, would I still make it? To determine the answer to this question, I’ll use some pretty basic numbers to figure out whether or not it was worthwhile. I used to work at least two nights a weekend for about five hours a night, and a rate of $20 an hour. Most party nights, I was working, so I rarely spent much money going out. By contrast, my friend was known to spend at least $30-40 a night, if not more.So, every weekend, I would be busy working and would make about $200. Sometimes I would go out after work to a bar open later, but I always kept myself to a budget of $20 and rarely went out often. From this we could roughly assume that I walked away from each weekend with $180. By contrast, my friend would have walked away from each weekend having spent $70-80, if not more.Each summer I worked for approximately four months at four weekends a month, so let’s guesstimate that I worked 16 weekends overall. If you were to compare my friend’s scenario to my own, each summer, he would spend $1,120 ($70 x 16), and I would make $2,880 ($180 x 16). My savings, of course, were used to support the costs of my schooling rather than taking on debt to cover the extra costs. If I had listened to my friend’s advice and instead lived the high life, it could be speculated that I would have had to take on $4,000 in debt each year if I had combined his lifestyle with my lack of earnings. Even at the 0 per cent interest rate students can often get, I would have needed to borrow $12,000 over those three years in order to ‘live it up’.Let’s speculate on the consequences of living the high life. Once out of school, let’s assume that my expenses were high enough that I needed to take on that part time job to pay off that $12,000 borrowed. So, we’ll use that same bouncing job, paying $180 a weekend, and assume a low and reasonable interest rate of five per cent that kicks in once I’ve finished school.Do you realize that if I had borrowed that money, it would have taken me 78 months working weekends to pay off the borrowed $12,000? That’s six and a half full years or 19.5 summers. Three summers ‘living it up’ would have amounted to nearly 20 of not being able to. So today, I’ve got limited debt, I don’t have to work weekends anymore and I get to go out and live it up when I want to. My friend? Well now I have a hard time convincing him to go out because he’s now realized the value of saving. So, when other friends ridicule me for not taking on debt to ride around on a high end bike, or cruise around in a tricked out car, I smile. My $1,500 car may be of little more value then the convenience of grabbing groceries or lugging around my kiteboarding gear. Sure, it’ll likely scare away more women then it’ll attract and may not be the kind of luxury most people would rather, but at least I can smile in knowing that I’ve realized the value of staying out of debt. For while many of my friends may be living it up in grand proportions now, I may well manage to live it up, on a slightly smaller scale, for a lifetime.